19 Feb Deloitte, EY, KPMG and PwC to face six more months of scrutiny
Edmund Tadros – The Financial Review – Wednesday 19 February
The big four consulting firms —Deloitte, EY, KPMG and PwC — are set to remain in the spotlight of a parliamentary committee looking into audit quality following a successful Labor push to extend the inquiry by six months.
Senator O’Neill told the Senate that the committee needed more time to examine the issues raised, a move opposed by the Liberal members of the inquiry who wanted to move straight to producing a report of recommendations. The move was agreed upon without the need for a vote.
“The terms of reference are broad and have not been fully canvassed,” Senator O’Neill told The Australian Financial Review.
“There are many questions asked on notice that remain unanswered. There are many more questions to be asked and fully answered.”
Liberal Senator James Paterson, the chairman of the joint committee, said extending the inquiry would delay action to “restore confidence to auditing in Australia”.
“After holding four public hearings, the committee has now heard from all major submitters and is ready to report,” Senator Paterson told the Financial Review.
“Hearing from the same witnesses again won’t change the recommendations, but it will delay the action government, regulators and the industry need to take to restore confidence to auditing in Australia.”
Senator Paterson also said that the inquiry had expanded beyond its audit quality mandate.
“It’s not the parliament’s job to provide an ongoing platform to pursue matters unrelated to the inquiry,” he said.
His comments echo a private complaint from the firms that many of the information requests fall outside the scope of the inquiry’s terms of reference, which are meant to relate to the “regulation of auditing in Australia”.
Senator O’Neill told the Senate last week that the firms, especially EY (the former Ernst & Young), had refused to “respond to and comply with information requests in the form of questions on notice from the committee on the basis that they are not related to a statutory audit and are not relevant to the terms of reference”.
She responded by saying that the “terms of reference are clearly much broader” that just statutory audit “and include the relationship between auditing and consulting services, and potential conflicts of interest, other potential conflicts of interest and any related matter”.
The inquiry has heard agreement from the firms, the corporate regulator and some experts that the current state in audit is not serving the users of financial information adequately. At the same time, professional bodies and academics are split on whether there is a problem at all.
It has also seen the big four, which are traditionally tight-lipped about internal operations, forced to reveal the way auditors are evaluated and paid, details about clients that have collapsed under their auditing watch, the tax arrangements of partners and the amount that retired partners are paid.
The firms have refused to reveal details about the margins they make on auditing compared with non-auditing work despite several admitting they consider themselves to be “systemically important” companies.
The inquiry has already received 110 submissions, held four days of public hearings and published 82 responses to questions on notice.